DEAR GARDEN STATE TRUST COMPANY,
HOW MUCH INCOME CAN I EXPECT FROM A LIVING TRUST? WHAT ABOUT A TESTAMENTARY TRUST, WOULD THAT BE DIFFERENT?
The very low interest rates in 2013 have meant that many investors have not been satisfied with their portfolio income. Everyone would like more income, but without more risk, which leads to the question about trust income.
Using a trust doesn’t necessarily change the amount of income that a portfolio generates. Should you place a securities portfolio into a revocable living trust, there would be essentially no immediate change in your investment income.
In a traditional testamentary trust, “income” means collected interest and dividend payments. With that approach, as interest rates and dividend yields rise and fall, income changes with them. Changes in asset values—growth in stock prices, for example—accrue to the remainder beneficiaries when the trust terminates.
Some testamentary trusts today take alternative approaches, defining income as a percentage of trust assets, or as a fixed dollar amount every year, or as a dollar amount adjusted for inflation—there are many alternatives to consider. However, if a fixed percentage is used to determine distributions, and the income falls short, the trustee will have to invade the principal to make up the difference.
Garden State Trust Company